Trick or treat? The
Chancellor calls the 2018 Budget for late October
The 2018 Budget has been set for
Monday 29 October, setting a deadline for speculation and proposals.
Mr Hammond, however, has indicated that he won’t end the long spell
of austerity measures, despite improving public finances.
Proposals raised by think tanks and
professional bodies include overhauls of income and inheritance tax,
‘pension tax relief simplification’, and scrapping entrepreneur’s
relief to help fund NHS costs.
But every proposal is overshadowed by
Brexit, and the uncertainty of what will happen on 29 March 2019.
What’s coming?
Alongside measures announced in the
draft Finance Bill, the following areas could see change:
The NHS – The NHS
Foundations’s ten-year plan will not be published in time for the
Budget, so the Chancellor could be limited to general spending
priorities. Mr Hammond said a digital services tax or ‘Google tax’
is coming – with or without European allies. This income could be
dedicated to the NHS.
Inheritance tax (IHT) – The
IHT review from the Office of Tax Simplification (OTS) may be
published ahead of the Budget. It was tasked to look at making IHT
less complex, focusing especially on trusts, administrative issues
and business and agricultural property reliefs. Calls for a complete
overhaul in favour of a ‘lifetime receipts’, ‘property’ or
‘wealth tax’ seem unlikely from a Conservative government.
Stamp duty – After introducing
new reliefs for first-time buyers, focus has shifted to ‘last time’
buyers, with calls to incentivise older homeowners to downsize. The
Prime Minister has also indicated that an additional 1-3% duty could
be levied on foreign property buyers to help control rising house
prices and tackle homelessness.
Business – Business rates are
due to increase next year, with business groups calling for action.
The Chancellor’s conference speech outlined changes to the
apprenticeship levy to help build training and skills for SMEs, and
appeared to boost commitment to the business sector.
The environment – We are
likely to see a dedicated plastics packaging tax. Initial reports
indicated the costs would be borne by manufacturers rather than
consumers. However, we may also see an increase to the plastic bag
levy from 5p to 10p and roll out to all shops, not just firms with
over 250 employees.
In this most turbulent of times, facing
pressure from many groups, perhaps the only clear thing is that Mr
Hammond has an unusually tricky balancing act to pull off.
HMRC caught out on IR35 and holiday pay
HMRC has suffered an embarrassing
setback after one of its contractors launched a claim for unpaid
holiday pay, relating to work covered under the off-payroll working
rules, also known as the IR35 rules.
At the end of 2016, HMRC employed a
marketing consultant, who was required to go onto an agency payroll.
The consultant wasn’t given a choice about this, because HMRC ran
the engagement through their CEST employment status tool – HMRC
abide by any decision issued by this tool. The contractor had to
accept the terms if she wanted to continue working with HMRC, and
that meant she was subject to salary deductions, including employer’s
national insurance.
However, while HMRC considered the
consultant as employed for IR35 purposes, it didn’t grant her
employment rights that she would have had as an employee. The
consultant claimed she was effectively an agency worker, which meant
she was entitled to holiday pay and entitlement in line with other
HMRC employees.
The case didn’t quite make it to the
employment tribunal, as HMRC agreed to settle by paying £4,200 to
the contractor on the morning it was due to start. This does mean
that no precedent has been set, but the case serves as further
example that contractors inside the IR35 rules should receive
employment rights.
The government is still considering
whether to extend the IR35 rules to the private sector – currently
they only apply to public sector engagements. Many people across
private industry are hoping this won’t be included in the
forthcoming Budget.
With HMRC tripping up on its own rules,
what is certain is more clarity is required.
Brief victory on VATMOSS for microbusinesses
A successful campaign by
micro-business owners has seen the EU introduce a new minimum
threshold for the VATMOSS rules. But with legislation due to take
effect in January 2019 at risk from a no-deal Brexit, the success
could be short-lived.
Under the EU rules on place of supply,
VAT is charged on any sales of digital products to a non-business
customer in the EU – in the country the customer is in. There is no
minimum threshold, which means even the most casual trader is
affected.
However, after a grassroots campaign by
sole traders and micro-businesses, the EU announced a minimum
turnover threshold of €10,000, and some simplification measures for
businesses turning over €10,001–€100,000. The new measures
will save digital traders with low profits from paying VAT on their
digital sales.
The rules will take effect in UK law
from 1 January 2019. However, with the Brexit date set for 29 March
2019, and the prospect of no deal with the EU, this could be very
short-lived in effect.
VAT MOSS
The rules were introduced to close a
loophole used by multinational businesses to avoid VAT, by
registering their revenue in a low-tax country such as Luxembourg.
Whilst large businesses could cope with the new requirements, this
created a real administrative burden for smaller affected sellers now
expected to pay VAT to tax authorities across the EU.
HMRC responded to the new rules by
setting up a VAT Mini One-Stop Shop (VAT MOSS). This system allows
traders to pay VAT for digital sales to the EU direct to HMRC, rather
than register for VAT in each relevant EU country.
However, according to HMRC’s ‘VAT
guidance on a no deal Brexit’, if the UK leaves without a deal with
the EU, “businesses will no longer be able to use the UK’s Mini
One Stop Shop (MOSS) portal to report and pay VAT on sales of digital
services to consumers in the EU. Businesses that want to continue to
use the MOSS system will need to register for the VAT MOSS non-Union
scheme in an EU Member State.”
If you are selling digital products to
the EU and would like advice on how to deal with Brexit, please get
in touch.
Class 2 NICs here to stay
The Chancellor has changed his mind
– again – on National Insurance Contributions (NICs) for the
self-employed. The Treasury has revealed that Class 2 NICs will
remain for at least the rest of this Parliament.
The Treasury’s justification was
that, without Class 2 NICs, “A significant number of self-employed
individuals on the lowest profits would have seen the voluntary
payment they make to maintain access to the state pension rise
substantially.”
This means that over three million
people will continue to pay the tax, providing more revenue for the
Chancellor at a time that he certainly needs it. However, as many as
300,000 self-employed people earning less than the Small Profits
Threshold (£6,032 a year) could have seen their NIC payments rise
from £2.95 a week to £14.65 a week.
Mr Hammond originally proposed a reform
of National Insurance Contributions (NICs) for the self-employed in
his March 2017 Budget. The 2017 proposal was to increase the main
rate of Class 4, from 9% to 10% in 2018/19 and again to 11% in
2019/20, bringing it closer to the employee rate of 12%.
The idea lasted less than a week before
it was buried under a welter of backbench criticism and The Sun
newspaper’s campaign. Some months later, the Treasury quietly
announced that the end of Class 2 NICs would be deferred a year. Now
they could survive until 2022, based on the current deadline for the
next General Election.
The decision, announced well ahead of
the Budget in October, is a reminder of the financial and political
constraints faced by the Chancellor.
The importance of a shareholder agreement for your new business
When incorporating a new business,
it can be easy to focus on immediate concerns of making some money.
However, it is also really important to take the opportunity to
create a shareholders’ agreement.
A shareholder agreement is a legal
document that sets out the rights, responsibilities, liabilities and
obligations of the shareholders. Importantly, where the articles of
association are filed at Companies House, a shareholders’ agreement
is private.
You can use a shareholders’ agreement
for a range of purposes such as:
Dispute resolution – Your
agreement can set out clear processes for resolving disputes between
shareholders. As well as having clear dispute processes, the
agreement could even force an obstructive shareholder to sell their
shares in certain circumstances.
Share transfers – If a
shareholder dies, or simply wants to sell their stake in the
business, the agreement can set out what happens. For instance, you
could give the business the opportunity to buy the shares back,
rather than be forced to sell them to a third party, or provide for
free transfer to family members inheriting a share in the business.
Reserved matters – Whilst
shareholders may not be involved in the day-to-day running of the
business, it might be appropriate for them to be decision-makers on
more significant matters. An agreement could require shareholders to
approve major changes, such as issuing more shares or amending the
articles of association.
Restricting competition – With
startups sometimes operating in small pools, you might want to place
restrictions on shareholders from starting competing businesses
during the sensitive first years.
Protecting minority shareholders –
Once in place, a shareholders’ agreement can only be changed if
all the shareholders agree. So, setting the right rules early on can
help you protect the interests of all investors from the first steps.
Selling a company – On the
other side, your agreement could include ‘drag along’ rights,
which allow a majority shareholder to force minority shareholders to
accept an offer to buy all the shares in a company. Whilst you can’t
reduce their share of the proceeds, you could stop a reluctant
individual from stopping a sale.
With so much to do at the start of a
business’s life, it can be easy to overlook the shareholders’
agreement. But as the above shows, getting it right from the outset
can save a great deal of trouble down the line.